Correlation Between Investment and New Perspective
Can any of the company-specific risk be diversified away by investing in both Investment and New Perspective at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Investment and New Perspective into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investment Of America and New Perspective Fund, you can compare the effects of market volatilities on Investment and New Perspective and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Investment with a short position of New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment and New Perspective.
Diversification Opportunities for Investment and New Perspective
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Investment and New is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Investment Of America and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective and Investment is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Investment Of America are associated (or correlated) with New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Investment i.e., Investment and New Perspective go up and down completely randomly.
Pair Corralation between Investment and New Perspective
Assuming the 90 days horizon Investment Of America is expected to generate 0.96 times more return on investment than New Perspective. However, Investment Of America is 1.04 times less risky than New Perspective. It trades about 0.14 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.09 per unit of risk. If you would invest 4,338 in Investment Of America on September 1, 2024 and sell it today you would earn a total of 1,968 from holding Investment Of America or generate 45.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Of America vs. New Perspective Fund
Performance |
| Timeline |
| Investment Of America |
| New Perspective |
Investment and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment and New Perspective
The main advantage of trading using opposite Investment and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment position performs unexpectedly, New Perspective can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in New Perspective will offset losses from the drop in New Perspective's long position.| Investment vs. Pgim Conservative Retirement | Investment vs. American Funds Conservative | Investment vs. Fidelity Advisor Diversified | Investment vs. Huber Capital Diversified |
| New Perspective vs. Growth Fund Of | New Perspective vs. American Funds Fundamental | New Perspective vs. Investment Of America | New Perspective vs. Smallcap World Fund |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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